How to use the risk-reward calculator
The calculator has three tools.
- Ratio measures a planned trade. Choose long or short, then enter the entry, the stop-loss and the take-profit prices. Add the position size if you want the dollar amounts. For currency trades, switch to Distances and enter the stop and target in pips; points and ticks work the same way.
- Take-profit places the target for you. Enter the entry and the stop, then the reward multiple you want, such as 2 for a 1 : 2 trade. A table lists the targets for 1R up to 5R.
- Break-even win rate works at the strategy level. Enter the average reward per unit of risk and your costs per trade, also in units of risk, and optionally your actual win rate.
Every tool shows the break-even win rate, because a ratio on its own says nothing about whether a trade is worth taking.
The formulas
Reward = |Target − Entry|
R = Reward ÷ Risk, written 1 : RFor a long trade the stop is below the entry and the target above it; for a short trade the other way round. With pips, use the stop and target distances directly.
Break-even win rate = 1 ÷ (1 + R)
Break-even win rate with costs = (1 + c) ÷ (1 + R)
Expectancy = p × (R − c) − (1 − p) × (1 + c)p is the win rate and c the cost of a round trip (commission, spread and slippage) as a fraction of the amount risked. Winners net R − c; losers lose 1 + c. Use + for long take-profits and − for short ones.
A worked example
You plan to buy at $82.40, with a stop at $79.90 and a take-profit at $88.65. The trade risks $2.50 per share to make $6.25, a 1 : 2.50 ratio.
At that ratio the trade pays for itself if it works more than 28.57% of the time. With 100 shares you would risk $250.00 to make $625.00.
A short trade at $50 with a stop at $52 and a target at $47 is a 1 : 1.50 trade. In pips, a 25-pip stop with a 60-pip target gives 1 : 2.40, and at $10 per pip it risks $250.00 to make $600.00.
Placing the take-profit
Once the stop is set, each multiple of the risk gives a target. With the example entry and stop:
| Multiple | Take-profit | Distance from entry | Break-even win rate |
|---|---|---|---|
| 1R | $84.90 | 3.03% | 50.00% |
| 2R | $87.40 | 6.07% | 33.33% |
| 3R | $89.90 | 9.10% | 25.00% |
Further targets need fewer winners, but they are also reached less often. That trade-off is the whole game: a 1 : 3 trade with a 20% hit rate loses money, while a 1 : 1 trade that wins 60% of the time makes it. The target should come from the chart, such as the next resistance level, and the ratio then tells you whether the trade is worth taking. Setting a 3R target where the chart offers only 1.5R does not create a better trade.
Why costs matter at low ratios
Commissions, spreads and slippage are paid on every trade, winners and losers alike. Measured in units of risk, they matter most when the reward is small:
| Ratio | Break-even, no costs | Break-even, 0.2R costs |
|---|---|---|
| 1 : 1 | 50.00% | 60.00% |
| 1 : 2 | 33.33% | 40.00% |
| 1 : 3 | 25.00% | 30.00% |
A scalper who risks $50 and pays $10 in costs per round trip carries 0.2R of costs, which pushes the break-even win rate of a 1 : 1 strategy from 50.00% to 60.00%. The trading cost calculator helps put a number on the costs.
Reading the expectancy chart
The chart on the Ratio tab plots the average result per trade, in units of risk, at every win rate. It crosses zero at the break-even win rate. The steeper line of a high-ratio trade means each extra percentage point of win rate adds more profit, but the line only matters at the win rate you actually achieve. Use the trading expectancy calculator to measure that from your own results.
With the default numbers on the Break-even tab, a 40% win rate with a reward of 2 R and 0.1 R of costs averages +0.10R per trade, a profit factor of 1.15.
Risk-reward in forex
Currency traders usually think in pips rather than prices, and the ratio is identical either way: a stop of 25 pips with a target of 60 pips is 1 : 2.40 whether the position is a micro lot or ten standard lots. The pip value only turns the ratio into money. The spread counts as a cost from the moment the trade opens, so on a tight stop it can be a large fraction of 1R. To size the trade in lots from the stop distance, use the lot size calculator.
What this calculator does not include
- The probability of reaching the target. The ratio is geometry; how often price gets there depends on the market and the strategy.
- Partial exits and moving stops. Scaling out or trailing the stop changes the realized ratio. The trailing stop calculator shows how a trailing exit plays out.
- Gaps and slippage beyond the stop, which make some losses larger than 1R.
- Position size. The ratio is the same for 10 shares or 1,000. Size the trade with the position size calculator.